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Chapter 9

ACC 406 chapter 9

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ACC 406
Anthony Chan

CHAPTER 9 – BUDGETING, PRODCUTION, CASH, AND MASTER BUDGET 1. Define budgeting and discuss its role in planning, control, and decision making  Budgeting is the creation of a plan of action expressed in financial terms  Budgeting plays a key role in planning, control, and decision making  Budgets also improve communication and coordination, a role that becomes increasingly important as organizations grow in size  The master budget, which is the comprehensive financial plan of an organization , is made up of the operating and financial budgets 2. Define and prepare the operating budget, identify its major components, and explain the interrelationships of its various components  The operating budget is the budgeted income statement and all supporting budgets  The sales budget consists of the anticipated quantity and price of all products to be sold  The production budget gives the expected production in units to meet forecasted sales and desired ending inventory goals; expected production is supplemented by beginning inventory. The results of the production budget are needed for the direct materials purchases budget and the direct labour budget  The direct materials purchases budget gives the necessary purchases during the year for every type of raw material to meet production and desired ending inventory goals  The direct labour budget shows the number of direct labour hours, and the direct labour cost needed to support production. The resulting direct labour hours are needed to prepare the overhead budget  The overhead budget may be broken down into fixed and variable components to facilitate preparation of the budget  The selling and administra
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